The Official Fuel Prices Thread

This is a discussion on The Official Fuel Prices Thread within The Indian Car Scene, part of the BHP India category; When two products are refined from the same raw material, and the price of one is constantly revised while the ...

When two products are refined from the same raw material, and the price of one is constantly revised while the other one remains constant, it amounts to cross subsidizing the second one from the price of the first. But the sale quantity of diesel will far,far outstrip that of petrol in the near future and put an end to this sham. Already the diesel versions of some cars have started to outsell their petrol siblings, according to a report in the TOI. A diesel car running 20k KM per year will break-even in 18 months at the current diesel prices. Diesel nanos and bikes are about to hit the road anytime now. I expect an announcement about a diesel Alto as well! Let us see how long the govt can sustain the price difference.

Like it or not, a heavy onetime tax on diesel cars at the time of registration is not far off. It will be a good idea to buy one before that happens.

From the refinery gate to the pump the tax is roughly 50%, or 1.3rd of the final price. 2/3rd of what you pay goes to the refinery.

Are you sure about taxes/duties being only 1/3rd of the price we pay ? I would think it is more like 1/2 of the price we pay. Hope you have also factored in customs duties on the crude imported ? Given that our domestic production is only ~1/4th of our demand, the rest is imported.

Quote:

Originally Posted by vina

Subsidy on LPG/kerosene is explicit, that is not same as what you get on petrol/diesel.

I guess we would agree that kerosene is mostly used as a fuel by the really low-income groups and I would not mind having to bear the cost of subsidising them. But LPG ? If indeed each cylinder is subsidised to the tune of 300-odd rupees like the oilCos claim, it is high time this is done away with. If a family can afford an LPG connection, they should pay for the same too. A 150buck hike per refill should do away with 50% subsidy.

Facts
1. Diesel is 25% cheaper in India, but not in free markets.
2. India subsidizes diesel due to the transport and farm sector's reliance on this fuel for various activities including power generation.
3. Private diesel vehicles eat-away a fair amount of the subsidy meant for the two sectors, and has been already identified as a cause for concern.
4. Petrol is de-regularized since last year.
5. Retail Petrol price is about 45% above the International Retail price.

These are not relevant to what I wrote - I was writing about intent of providing a subsidy in the first place (historical context) not about what is going on right now.

Quote:

Originally Posted by Fornax

Facts
1. Diesel is 25% cheaper in India, but not in free markets.
2. India subsidizes diesel due to the transport and farm sector's reliance on this fuel for various activities including power generation.
3. Private diesel vehicles eat-away a fair amount of the subsidy meant for the two sectors, and has been already identified as a cause for concern.
4. Petrol is de-regularized since last year.
5. Retail Petrol price is about 45% above the International Retail price.

Also "international retail price" means what? prices are different in different countries, US, UK, EU all have different prices. And US subsidizes its oil companies (not like our subsidies where govt. gives subsidies and then taxes the hell out - pure subsidies)

Nothing is de-regularized in any true sense. That happens when each company is free to set its own market prices, that is not the case.

Quote:

Originally Posted by supremeBaleno

Are you sure about taxes/duties being only 1/3rd of the price we pay ? I would think it is more like 1/2 of the price we pay. Hope you have also factored in customs duties on the crude imported ? Given that our domestic production is only ~1/4th of our demand, the rest is imported.

import duty is not very high, they do not constitute a big fraction of the taxes.

Quote:

Originally Posted by supremeBaleno

I guess we would agree that kerosene is mostly used as a fuel by the really low-income groups and I would not mind having to bear the cost of subsidising them. But LPG ? If indeed each cylinder is subsidised to the tune of 300-odd rupees like the oilCos claim, it is high time this is done away with. If a family can afford an LPG connection, they should pay for the same too. A 150buck hike per refill should do away with 50% subsidy.

I agree with you on LPG, and disagree on Kerosene.

My reasons:

Kerosense in primarily a fuel used (in part) by the urban poor and by pilferers. Rural poor (i.e. the vast majority of the poor) do not use kerosense.

Kerosene pilferage is a politician-controlled huge theft scheme - the annual theft is far larger than the entire telecom scam.

It'll be better to do away with subsidised kerosene and just give the poor people coupons (like the Sodexo coupons) they can use to buy kerosene anywhere with explicit subsidy on each coupon - that will cut down the pilferage without cutting benefits, and though some corruption will still happen, it'll reduce the magnitude of subsidy very heavily.

Last edited by bblost : 18th May 2011 at 11:03.
Reason: Use edit when available instead of creating a new post. Thanks.

why increase the prices 1 day after the assembly elections (and in the past, a few days after important political events)

why are all PSUs cribbing that govt. is not allowing them more prices

why does the group of ministers have to deliberate the price hike - why do govt, spokesmen talk about it before the actual hikes

given that each company must have different refining and other costs, why is it that every single PSU OMC charges the same price for petrol?

Reliance have just cut the prices by Rs.2.50 to bring them on par with the oil PSUs. They had increased by Rs.5.25 earlier. So presumably they are not selling at a loss.

The points raised above have some interesting corollaries:

1. This cannot be Free Market Pricing. Price increase when global prices are declining.
2. They think they are building up an atomosphere in the aam admi.
3. Is cartelisation Ok for PSUs. If three private sector firms (constituting over 95%) increased the price by Rs.5 (+0.01) on the same day, the netas and babus would have come down like a ton of bricks for price fixing.
4. Obviously. Then how is Ambani able to cut prices to match. He gets no subsidy and is not exactly in the business of charity.

Now see the noise developing for free market pricing for Diesel. Let us see.

Incidentally, Pranabda is earning mroe whenever the prices go up. According to one of the financial channels, only Rs.30 out of the Rs.63 is going to the OMCs. The rest is taxation, all as a percentage. Only the Rs.5 or so which is duty is not in the control of the FM, the rest is. So we are paying Rs.28 per litre additional as a percentage taxation under their control.

Also, we should ask whare the Re.1 (or is it 2) per litre we pay as road development cess going. It was earmarked for highways, but I am quite sure the bulk is vanising into the black hole called the Consilodated Fund of India.

We have Nepal's experience to show that the bulk of Kerosene goes into diesel. So why not make the pricing realistic. There is no talk of this. Even though there was a murder nto so long ago when someone wanted to take on the oil mafia.

Duh! We didn't start farming and transportation in 1990s you know. These sectors were the original intent of the subsidy is what I am stating, and you are suggesting that's not the case, and that subsidies' only purpose is price-stabilization.

Quote:

Originally Posted by vina

Enlighten me some more; If it is not the govt.'s doing then:

why increase the prices 1 day after the assembly elections (and in the past, a few days after important political events)

why are all PSUs cribbing that govt. is not allowing them more prices

why does the group of ministers have to deliberate the price hike - why do govt, spokesmen talk about it before the actual hikes

given that each company must have different refining and other costs, why is it that every single PSU OMC charges the same price for petrol?

That's because the government holds a stake in these companies, but OMCs are NOT the government. To further simplify it, the government has a say in OMC decisions but the decisions themselves come from OMCs rather the Petroleum Ministry. Historically the price hikes were announced by the Petroleum Ministry, not after Jun-2010.

why increase the prices 1 day after the assembly elections (and in the past, a few days after important political events)

why are all PSUs cribbing that govt. is not allowing them more prices

why does the group of ministers have to deliberate the price hike - why do govt, spokesmen talk about it before the actual hikes

given that each company must have different refining and other costs, why is it that every single PSU OMC charges the same price for petrol?

I would agree with Vina, the de-regulation of the petrol prices by the Government is not a deregulation in it's true sense. Though Petrol prices are freed. The Oil companies, still consult and take govt's advise for raising the prices.
As of now the old companies are losing 10/- per litre but they hiked the prices by only Rs. 5/-. If they had their way they would have hiked by 10/- and that too without waiting for the Assembly elections to finish in some states.
The hike in price of petrol just a day after results were out, completely deride the fact that OMCs are free to price petrol.
I just hope some sense prevails with the Government and they rationalize taxes on the fuel.It's way high at around 50% of the total cost per litre.
Also they should truly free the diesel and other subsidised fuel prices and provide subsidy to the needy in form of cash.
But the Govt. lacks will to do it and will opt for a easier route to charge one time tax on the diesel vehicles.
I wonder really, how much govt. collects in tax from the fuels and what amount it gives the OMCs to cover the subsidy. My guess is, even if they cut tax by 50%, they would earn enough to cover the subsidy and still keep some thousand crores in it's kitty ?

That's because the government holds a stake in these companies, but OMCs are NOT the government. To further simplify it, the government has a say in OMC decisions but the decisions themselves come from OMCs rather the Petroleum Ministry. Historically the price hikes were announced by the Petroleum Ministry, not after Jun-2010.

Oh, really! Same as you know who's decisions coming from the PM as his own!